This morning in court, John Lam explained the “comfort letter” and his discussion about the amended Xtron bond with Sim Guan Seng, CHC’s audit engagement partner in 2009.

CN PHOTO: Daniel Poh

John Lam was convinced that the church would not exercise its rights to convert its bonds to shares in Firna, Wahju Hanafi’s glassware company. That was the reason Lam signed the “comfort letter”, which the court heard existed as a form of assurance to Hanafi’s father-in-law but which Hanafi had no intention of enforcing.

In this morning’s court proceedings, Lam explained that he agreed to sign the “comfort letter” because the convertibility feature in the Firna bond was a non-issue for him. The church had no intention to hold shares of a glassware factory and an unlisted company, he said. This was not in line with the vision and objectives of the church.

He went on to explain that the rights of a bond holder are superior than the rights of an equity share holder. If the church were to convert its bonds into shares, CHC would only own up to 40 percent stake, which means the church would have minority interest and would not be able to enforce asset liquidation. Lam pointed out that on top of that, Hanafi had given a personal guarantee for the liabilities of the Firna bond.

Lam also explained that there was also a convertibility feature in the amended Xtron bond which would allow CHC to own up to 99 percent of Xtron’s shares. The purpose of the amended Xtron bond was to purchase Riverwalk, a property that would be used by CHC. In the event Xtron defaulted on its bond repayment, the church would take over Riverwalk and continue using it.

The prosecution had brought up the “comfort letter” in the course of their witness Wahju Hanafi’s time on the stand, using it as evidence that the team were agreeing to terms that were not in the church’s favor. The letter was issued by City Harvest Church to Hanafi and his father-in-law. Hanafi’s father-in-law held a 20 percent stake in Firna and he was not willing to sign the shareholder’s waiver. This letter constituted a written promise by the church that in the event the bonds were converted to shares, the church would sell the shares back to Firna at a nominal value of US$1. Lam said that he sincerely believe that Hanafi would not use the letter and it existed only to persuade his father-in-law to sign the agreement.

The court also heard that during the audit closing meeting, Lam and co-defendant Tan Ye Peng had explained the relationship of Xtron and CHC to Sim Guan Seng, CHC’s engagement partner in 2009. Sim felt that the church should purchase Riverwalk on their own instead of going through Xtron and that the Xtron bond should be kept simple without the convertibility feature. Lam said today that he had explained at length to Sim that CHC did not want, as a church, to hold the property; instead, it wanted another commercial company to hold a commercial property. Lam told the court that by the end of the meeting, Sim came across to him as having understood the rationale, and did not see anything wrong with his explanation about the amended Xtron bond and CHC’s relationship with Xtron.